“Only a few strong, large universal banks will remain,”
including Deutsche Bank, Germany’s largest lender, Jain said
today at a conference in Dubai. Since the global financial
crisis, the leading global investment banks have reduced their
leverage by 40 percent and increased their so-called tier 1
capital by 160 percent, according to Jain.

Under the Basel Committee on Banking Supervision’s latest
round of rules, European lenders will be expected to hold more
than three times their so-called core capital as a buffer
against insolvency than before the financial crisis. Jain said
consolidation is the “unintended consequence” of such new
regulations as some banks retreat from previous plans.

“The number of banks still keen to play the role of being
a global multi-location universal bank has shrunk,” Jain said.
“The price of being global has gone up dramatically, and the
desire to be a global bank has dropped off.”

One-third of global banks will end their global ambitions,
with fewer than 10 maintaining a global footprint, according to
a November report by consultancy Roland Berger.

Shrinking Banks

Investment banks will make a further 40,000 job cuts after
the 25,000 already announced, and firms will shift from tactical
cost reductions to a “radical redesign” of their operations as
regulations change, the report said.

UBS AG became the latest European bank to scale back when
it said it would reduce fixed-income trading last month,
eliminating 10,000 jobs. Royal Bank of Scotland Group Plc said
in January that it will close or sell its equity and merger-advisory divisions.

“I think by the time we’re done, we’ll have five or six
universal banks left standing,” Jain said. “Clearly, Deutsche
Bank wants to be one of them.”

Jain also said that over-regulation of the banking industry
would lessen the supply of credit, hurting small and medium-sized enterprises.

Deutsche Bank is cutting 1,993 staff and combining its
fixed-income and foreign-exchange units. The bank reported an
unexpected 3 percent gain in third-quarter profit on Oct. 30,
helped by a rally in bond and stock markets that boosted
trading.

No Euro Exit

The lender will boost core tier 1 capital to at least 8
percent of its assets weighted by risk under the stricter Basel
III rules by the end of March, and that ratio will rise to more
than 10 percent two years later, Jain and co-CEO Juergen
Fitschen said in September.

Jain said today that he expects the euro region to “remain
intact,” and that the risk of a country leaving the single
currency had diminished significantly after the European Central
Bank pledged to support bond markets in July.

“Fiscal consolidation has already reduced deficits in
peripheral countries, progress has been made on labor market and
pension reform, and pan-European containment mechanisms, or
’firewalls,’ have been strengthened,” he said in copy of the
speech given to reporters. Europe still faces a “very extensive
structural realignment,” he said.

European finance ministers today failed to agree on a debt-reduction package for Greece after battling with the
International Monetary Fund over how to nurse the recession-wracked country back to fiscal health.